Leaner retirement in the works

Like lobsters in a pot of cold water, federal workers (and retirees) have been anticipating trouble but looking in the wrong direction at the wrong dial. Now the real “menace” — for the human civil servants — is upon them: It is called the CHAINED CPI.

The White House wants to make a major sea change in the way future benefits for retirees — Social Security, civil service and military — are computed. It’s called the “chained CPI” which makes it sound like a cheap science fiction story or a naughty, low-budget film. Instead, it is a multibillion dollar change that Congress has toyed with for years without ever pushing it.

CPI stands for Consumer Price Index. There are a number of them measuring different costs. If the chained CPI becomes law, the Bureau of Labor Statistics would use a different measurement to determine living costs.

Backers of the change say the current system overstates inflation because it doesn’t take into account the fact that when prices for certain things go up, people switch to lower priced substitutes (hamburger instead of steak).

Opponents of the chained CPI say eventually, as prices rise and COLAs don’t keep pace, people would be switching down to cat food or Hamburger Helper without the hamburger.

Advertisement

(In an op-ed piece in yesterday’s Washington Post, former CIA Director David H. Petraeus and Michael O’Hanlon of the Brookings Institution suggested Democrats “propose refinements” to what they called the “overly generous cost of living adjustment formula for Social Security and certain other programs…”).

Whether you love or hate the idea, the CPI would quickly save a ton of money.

The new White House budget proposes the switch to the chained CPI, as well as higher employee contributions to their current retirement plans. Using the new formula would reduce future payments to retirees. Raising contributions on current employees would increase revenue for the CSRS and FERS retirement funds. Most of the savings would come from slightly reducing future Social Security benefits. But people who get federal civil service annuities (usually much higher than Social Security payments) would be hit too. Over time, the smaller COLAs triggered by using the new formula would add up, big time. And like lobsters once in the pot, future retirees and workers would hardly notice that the heat had been turned up.

For years now, many federal workers have faced, feared and been distracted, by threats to their benefits package. Much of their attention focused on proposals (which have been kicking around for 20 or more years) to compute their retirement benefits on their highest five-year average salary. Currently, benefits are based on length of service and the high three years of service.

Although the high-five system has never gotten past first base in Congress, it was the sum of all (or at least most) fears for most workers. But groups representing federal workers, managers and retirees have always warned that the two biggest threats to the federal benefits package are the chained CPI and legislation that would force feds and retirees to pay a bigger share of their health premiums.

Switching from the high-three to a high-five system would save relatively little money. Moving to the chained CPI formula would save an estimated $35 billion over the next few years. That is money that would never go into the Social Security or civil-service benefits of retirees or military retirees.

Has it got a chance? House Republicans love the idea. Many Democrats, who are anxious to save entitlements, like the slow-cook effect of the plan and now the White House has proposed it. So what do you think?

German police reported more than 5.5 tons of the hazelnut spread — totaling more than $30,0000 — were stolen from a parked truck in the northeastern Germany city of Niederaula. Now, those are some thieves with a sweet tooth.

Federal retirements exceed expectations for third month For the third month in a row, the number of federal employees filing retirement claims outpaced the Office of Personnel Management’s projections. OPM received 10,183 retirement claims in March, more than double the number it expected to receive, according to new OPM data.